What a simple question, you might think. It’s a contract and, therefore, it’s a six year statute of limitations in Tennessee, right?
Wrong, in most cases of first party coverage or payment disputes. Most policies contain a clause which limits, and reduces, the time for filing a suit over a dispute in coverage or payment of a claim. For instance, most policy forms contain a clause similar to the following:
Suit Against Us. No action shall be brought unless there has been compliance with the policy provisions. The action must be started within one year [sometimes two years] after the date of loss or damage.
Provisions limiting the time of a suit or action on the policy to a year after the date of loss have been interpreted, by Tennessee Courts, to mean twelve months after the cause of action accrues. See, e.g., Das v. State Farm Fire and Casualty Company, 713 S.W.2d 318, 322 (Tenn. Ct. App. 1986), perm. app. denied. See also Sharp v. Allstate Insurance Company, 1992 Tenn. App. LEXIS 860 at *3 (Tenn. Ct. App. W.S. 1992).
So, we have one year or sometimes two years from the date of loss to sue, right? Wrong, again. In the Das case, the courts held that a cause of action based upon the denial of a claim accrued at the time of denial. One appellate statement of the law has been that the insured’s right to sue accrues upon the insurer’s absolute and unconditional denial of liability on the policy. See, e.g., Dixon v. Thomas Jefferson Insurance Company, 1989 Tenn. App. LEXIS 814 (Tenn. Ct. App. W.S. 1989).
But, what if there has been partial payment, and you just cannot agree with the carrier on the last coverage line, or the amount thereof? It seems that, under these cases, the cause of action would only accrue when there is a breach of the contract, i.e., when the carrier fails to pay what the insured wants. Until then, the policyholder and his/her counsel are happy, and would have no reason to sue.
Why is a lawyer who typically represents insurance companies explaining this? While the co-author of this blog, Brandon McWherter, will hopefully chime in, I have a simple reason for explaining this position. As much as I do enjoy and appreciate the opportunity to earn income from files such as this, they are short lived and usually completely unnecessary. In the past two years, I have had five suits filed against my clients where the attorneys thought that they had to file “to protect the statute of limitations.” While I completely understand that concern, where these suit clauses exist, and where, for instance, there has been no refusal or failure to pay, an insured simply does not a cause of action in, and there is no need to file to protect the statute of limitations. These suits get adversarial much too early, and I firmly believe that my clients really work to pay what they owe. I had rather see negotiations continue to a conclusion, if possible, before a lawyer (for either side) has to get involved. Sometimes it is necessary, but I can count five cases in two years where it really has been unnecessary.